05 Mar You can never have too much access to working capital
When most people are looking for additional working capital, quite often it is to solve a problem. They may have a working capital gap due to a differential between purchasing stock and selling it, or their cashflow cycle may be seasonal. However, accessing additional working capital should not just be utlised during times of limited funds, it can be used by your business in clever and strategic ways, which can help your company succeed and grow. In this article, we show you how.
Using working capital solutions to solve a problem
When a business uses a working capital solution to solve a problem, that business might need help to close a funding gap between paying suppliers and their customers paying them; perhaps because their existing lines of credit are already fully utilised. This may be further exacerbated by dealing with larger suppliers who are reluctant to give any credit terms or, if they do, the terms are not generous enough to really help the business’ cash flow. Or there may be peak times within a trading cycle when cash seems to go out of the door in large amounts, particularly when the quarterly VAT is due, giving the owner a real headache in the process.
Closing the funding gap
Pay4 can help in these situations because by having Pay4 settle these suppliers on behalf of the business, with up to 120 days credit on the monies borrowed, it is effectively extending the credit period being taken from its suppliers. This means the problems caused because of a funding gap, restrictive supplier terms, or because of big swings in trading cycles can be more easily managed, allowing the business owner to focus on more productive activities.
The wider benefits to accessing more working capital
Having easy access to additional working capital is not just about managing cash shortages when they arise, it also gives you, the business owner, a strategic opportunity to use the cash available for the wider benefit of the business. Here are a few examples of how our customers are using Pay4 to create additional benefit for their company.
Many suppliers have their own cash flow considerations to take into account. Most will be more than happy to provide a discount in order to receive payment immediately, or earlier than the standard payment terms. By using Pay4 to pay suppliers early, the Pay4 customer benefits from the discount negotiated and then from the potential to take up to 120 days credit as well.
The impact on cash flow of paying the supplier early is fully offset, whilst the business is presented with an opportunity to increase profits and create an even better relationship with their suppliers.
Optimising stock levels
Some businesses have a range of opportunities to grow, but are constrained because they can’t hold enough stock. By using Pay4, additional stock can be purchased and, by taking advantage of up to 120 days credit, the chances are that the stock will be sold and the money received from the client well before the Pay4 transaction requires repayment. This provides the business with a great opportunity to maximise sales and profits.
Tendering for larger contracts
Sometimes, a business might be offered the chance to tender for a contract, which could be of great benefit to its long term aims. However, in many circumstances like this, the business might need to invest in raw materials and expend other costs well before the contract produces any positive cash. This limits many businesses in terms of the size of contract it is able to take on.
A Pay4 supplier payment facility provides access to additional working capital, giving the business owner the confidence to tender in the knowledge that, if successful, they would be able to fully fund the contract set up costs. This in turn, aids the growth of the business.
Providing increased credit terms for customers
Often in a marketplace, standard credit terms are provided to clients which everyone broadly adheres to. In this respect, there is little differentiation between one business and another. Utilising a Pay4 facility provides the business with the opportunity to extend credit terms to its clients/or potential clients. This in turn could aid the winning of new contracts, since the business is able to set itself apart from its competition, or allow the business to charge a higher price to the end client for providing extended credit. In both scenarios, it gives the business the ability to increase its profitability.
Unique features of the Pay4 credit facility
There are a number of unique features within the Pay4 product providing it with a flexibility which helps to bring these strategic opportunities to reality. The first is that the product is insurance backed which means that we do not need to take any other security, such as a charge over the assets of the business. This makes the product easy and quick to set up.
Because we are insurance backed, not assets backed, your existing funder relationships are not compromised; the Pay4 facility sits alongside existing facilities that the business may have. In fact, Pay4 already works with other Financial Institutions to provide their customers with access to additional working capital in circumstances where they are unable to do so.
Lastly, there are no setup or non-utilisation fees associated with the Pay4 facility, and we only charge a transaction fee for the amount and term borrowed. This means that a business is not paying for facilities it is not utilising and can decide for itself when to use the facility, and thereby obtain maximum advantage. It also allows a facility to be put in place to cater for the unexpected, giving the business peace of mind that it is unlikely to run out of cash.
Therefore Pay4 not only helps in those situations where a creditworthy business may already be experiencing varying degrees of cash flow pressure, it can also facilitate increased growth and profitability by allowing the business owner to think more strategically in terms of how the business uses the working capital resources available to it. This begs the question, “why wouldn’t you want a Pay4 facility?”